An investment bank has sought your advise on their plan to install Bloomberg Terminals in their new offices. They have the below three option

$$

$$They can lease the Terminals for

$$

$1$

$0$

$,$

$0$

$0$

$0$

$$growing at

$3$

$\%$

$$a year for

$5$

$$years$.$ The lease expenses would be treated as operating and therefore would be tax

$-$

deductible.

$$

$$They can buy the Terminals for

$$

$4$

$0$

$,$

$0$

$0$

$0$

$$and depreciate it over

$4$

$$years$,$ which is the expected project life.

$$

$$The third option is to buy the Terminals for

$$

$4$

$0$

$,$

$0$

$0$

$0$

$$and expense it immediately. The Terminals will still have an expected life of

$4$

$$years$.$

If the main rate of corporation tax is

$2$

$5$

$\%$

$$and the cost of capital is

$1$

$0$

$\%$

$,$

$$estimate the equivalent annual cost of each option.